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Stocks Fall as Republican Leader Loses Control of His Party

NEW YORK (
TheStreet) -- Major U.S. stock averages fell Friday, dragged down by House Speaker John Boehner's failure to get Republicans to follow his back-up plan on the so-called fiscal cliff.

Boehner, undone by more extreme members of his party, canceled a Thursday night vote on his "Plan B" budget proposal because he didn't have enough votes to get the measure passed.

The top Republican in the House indicated at a news conference Friday that he was still open to continued negotiations with the White House, and wasn't ruling out bringing up a bill that could pass with a significant amount of Democratic votes. Meanwhile, he reiterated the difficulties of bridging the political divide, a sentiment that stuck with most investors.

"We had a number of our members who really just didn't want to be perceived as having raised taxes; that was the real issue," Boehner said.

The news outweighed upbeat durable goods, and personal income and spending reports on Friday.

The
Dow Jones Industrial Average dropped 121 points, or 0.91%, to 13,191. The blue-chip index, which had suffered its biggest loss since Nov. 14 as it slumped to an intraday low of 13,122.53, began the session up more than 8% in 2012. It closed higher for the week, up 0.43%.

Losers trumped winners on the Dow 28 to two. The most prominent decliners were
Bank of America(BAC),
Walt Disney(DIS),
Caterpillar(CAT) and
Exxon(XOM).

American Express(AXP) and
McDonald's(MCD) were the only blue chips that finished with gains on Friday.

The
S&P 500 fell 14 points, or 0.94%, to 1,430. Despite Friday's losses, the S&P tacked on 1.17% for the week. The
Nasdaq shrank 29 points, or 0.96%, to 3,021. The tech-heavy index suffered its largest one-day drop since Nov. 7 at its intraday low of 2,995. It gained 1.67% on the week.

All sectors in the broader index retreated, with the utilities sector holding up better than others. The biggest losers included technology, financials, consumer non-cylicals and energy.

Decliners eclipsed advancers by a ratio of 2-to-1 on the
New York Stock Exchange and the Nasdaq.

At final check, volumes totaled 4.84 billion shares on the NYSE and 2.62 billion shares on the Nasdaq. At the open Friday, volumes swelled to more than 3.63 billion shares at the Big Board and 1.67 billion shares on the Nasdaq, with Friday being a "quadruple witching" options-expiration day.

"Simply put, this is bad news for the speaker and bad news for any future cliff-averting deal," said Dan Greenhaus, chief global strategist at BTIG. "A bunch of people have asked, 'Now what?' Unfortunately, the simple answer is that nobody knows."

Greenhaus said it seems the most likely option now is for President Barack Obama and Senate Majority Leader Harry Reid to construct a bill in the Senate. He said that while a bill in the Senate could pass, the question is whether it could get enough Democratic votes in the House to compensate for the defecting Republicans.

It would need to be a "very" bipartisan bill, Greenhaus noted. "In any event, there's just no way, no way, it can be constructed in three days."

Gareth Berry, a foreign-exchange strategist at UBS, said the headlines look worse than they actually are. "After all, the plan was doomed to begin with, given Democrats had already decided not to put it to a vote in the Senate, and Obama had already threatened to veto it if necessary."

Berry also noted that "the nervous market reaction was justified to some degree, however, given it illustrates just how difficult it will be to reach a compromise solution before year-end."

The Republicans' "Plan B" counteroffer had included some spending cuts with tax increases only for those making more than $1 million.

At Bank of America, economists haven't changed their call expecting a deal to emerge at the last minute and much of the decisions to be delayed into the new year, with austerity of roughly 2% of gross domestic product, said Ethan Harris, co-head of global economics research at the firm.

On the U.S. data front Friday, the Bureau of Economic Analysis reported personal income growth of 0.6% in November after an increase of 0.1% in October. Personal spending rose 0.4% after falling 0.1% in October. Economists, on average, were expecting personal income growth of 0.3% and personal spending to rise by 0.3%.

The Census Bureau reported that durable goods orders rose 0.7% in November after increasing 1.1% in October, and that, excluding the transportation component, durable goods orders ticked up by 1.6% after rising 1.9% in October. Expectations were for a durable goods order rise of 0.2% and a decline of 0.2% excluding the transportation component.

"Taken together, November's personal income
and
spending and durable goods reports suggest that fourth-quarter GDP growth will be a little stronger than we previously thought," said Paul Ashworth, chief U.S. economist at Capital Economics.

The final University of Michigan consumer-sentiment index edged down to a five-month low of 72.9 for December from a previous 74.5 as Americans remained anxious about the outcome of the Washington debates on tax and spending reforms. It was expected to increase to 74.7 for December.

Gold for February delivery climbed $14.20 to settle at $1,660.10 an ounce at the Comex division of the New York Mercantile Exchange on safe-haven demand, while February crude oil contracts closed down $1.47 at $88.66 a barrel.

The benchmark 10-year Treasury jumped by 10/32 to dilute the yield to 1.769%. The dollar was up 0.40%, according to the
U.S. dollar index.

The stock of the BlackBerry maker moved higher in after-hours trading Thursday but reversed course during an earnings call after RIM said it would change the way it charges customers service fees, putting a key source of revenue at risk. Shares plunged 23% on Friday.

Red Hat(RHT) posted third-quarter sales that topped analysts' estimates and it announced Thursday it was acquiring
ManageIQ, a cloud software company, for $104 million in cash. Shares gained 4.5%.

Greenbrier Cos.(GBX) rejected a sweetened bid from
American Railcar Industries(ARII), which is controlled by investor Carl Icahn. Greenbrier shares tumbled 11.1% and American Railcar shares were down 2.6%.

The board of flash-memory maker
SanDisk(SNDK) approved an additional $750 million for stock buybacks, bringing the total stock repurchase authorization to $1.25 billion. Shares added 0.20%.

Ameristar Casinos(ASCA) announced that it has agreed to be acquired by
Pinnacle Entertainment(PNK) for $26.50 a share in cash, representing a premium of 45% over the average closing price of Ameristar common stock for the 90 days ended Dec. 20. Ameristar shares soared 20.1%, while Pinnacle Entertainment shares jumped 21.4%.

AbbVie( ABBV ), which is being spun off by
Abbott Laboratories(ABT), is set to replace
Dell(DELL - Get Report) in the S&P 100 and
Federated Investors(FII - Get Report) in the S&P 500. Dell shares lost 0.67% and Federated shares gave up 2.1%.

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